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Recently, the investment community seemed to get excited about Moneygram International Inc (NYSE:MGI) when there were rumor that the company was putting itself up for sale and has talked to several potential buyers. Since the beginning of the year, MoneyGram International has delivered an impressive gain of more than 56.4%, beating the S&P 500’s return of only 15.6%. Is MoneyGram a good buy now? Let’s take a closer look and find out.

Revenue grew but operating income dropped

Moneygram International Inc (NYSE:MGI) is considered one of the leading companies in global money transfers, bill payment solutions and financial paper products under The MoneyGram brand. It has around 310,000 agent locations in 197 countries, operating in two main business segments: Global Funds Transfer and Financial Paper Products. Around 82.2% of the total operating income, nearly $150 million, came from the Global Fund Transfer segment, while the Financial Paper Products segment contributed only $32.7 million in 2012 operating profit.

In the past three years, while MoneyGram experienced consistent growth in its revenue from $1.16 billion in 2010 to $1.34 billion in 2012, its operating income keep declining. The operating income dropped from $158.4 million to only $52.4 million during the same period. The decline in the operating income was due to the much higher commissions expense and higher transaction and operations support.

What I worry about with this company is its weak balance sheet. As of March 2013, Moneygram International Inc (NYSE:MGI)had the negative equity of $(172) million, nearly $3 billion in restricted cash, $849 million in long-term debt and as high as $4 billion in payment service obligations. The company is trading at around $20.90 per share, with a total market cap of more than $1.2 billion. The market values MoneyGram at 7 times its trailing EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) and 0.88 times its sales.

Compared to its much bigger peer The Western Union Company (NYSE:WU), Moneygram International Inc (NYSE:MGI) is a bit cheaper. At nearly $17 per share, Western Union is worth $9.5 billion on the market. The market values Western Union at 7.3 times its trailing EBITDA, and 1.71 times its sales. Western Union is really a global market leader with 15% market share while MoneyGram ranks second with only 5% of the market. Western Union had many more agent locations, of 437,000 in wider coverage of 200 countries than Moneygram International Inc (NYSE:MGI). Thus, it should deserve a higher valuation. In the first quarter 2013, Western Union experienced sluggish EPS of $0.37 per share, a bit lower than the EPS of $0.40 per share in the same quarter last year. However, its EPS still beat Wall Street’s estimates of $0.33 per share. Looking forward, Western Union estimated to generate around $1.33 to $1.43 per share.